State, Local Tax Share Falls For First Time Since 2000

02/24/2011 09:28 am ET
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Updated
May 25, 2011

MIAMI (By Michael Connor) - Taxes paid to local and state governments as a share of incomes fell in 2009, as taxes tumbled more quickly than wages and other income during America's recession, according to a study released Wednesday.

The decline in fiscal 2009 broke a stretch between 2000 and 2008 when the average nonfederal tax burden across the 50 states rose to nearly 10 percent from 9.4 percent in 2000, according to the report by The Tax Foundation.

"During fiscal year 2009, in the midst of a national recession, both income and taxes shrank, but taxes fell faster than incomes," Tax Foundation economists Mark Robyn and Gerald Prante said. "The result was that tax burdens decreased from 9.9 percent in 2008 to 9.8 percent."

State and local governments recently reported improvements in tax and other revenue collections but still feel the drag of America's slow economic recovery and face budget gaps that, for state governments, look to total at least $100 billion in the fiscal year beginning July 1.

The financial stresses underlie proposals for deep budget cuts throughout the United States and high-profile standoffs between policymakers and government workers in Wisconsin and elsewhere.

The nonpartisan foundation study said people living in New Jersey, New York and Connecticut gave the highest proportion of their incomes to states and other local governments, paying 12 percent or more in income, property, sales and other taxes.

Alaska, which taxes oil shipped from its territory and decades ago ended personal income taxes, had the lowest local-state tax burden of all at 6.3 percent. Other low tax-burden states in 2009 were Nevada, South Dakota, Tennessee and Wyoming.

California ranked fifth-highest with a 10.6 percent proportion and Florida was 31st at 9.2 percent, despite significant taxes paid by tourists and no state income tax. Texas had a local-state tax burden of 7.9 percent that left it ranked 45.

"The 50 state-local tax burdens are mostly very close to each other," the economists wrote. "This is logical because state and local governments fund similar activities such as public education, transportation, prison systems, and health programs ... Also, tax competition between states might make dramatic differences in the level of taxation between similar, nearby states unsustainable over the long term."